April 22, 2024
The Green Check Team

Considering a Cannabis Digital Payments Strategy? Read This First

Whether you’re a retailer ringing up customer sales, or a service provider invoicing other cannabis businesses, the way you get paid can make a big difference to your cash flow. Learn more about payment processing in cannabis, the types of solutions available, and what to look for when choosing solutions to implement for your business. Consumers, especially American consumers, have payment type preferences. Dispensaries may choose to offer several payment solutions, understanding that today’s solutions are still evolving.

Challenges around cannabis payments

One major challenge in cannabis payments is that credit and debit card networks like Visa and Mastercard prohibit transactions on their networks in the U.S. due to cannabis’s status as a Schedule I controlled substance under federal law. That means retailers cannot use the traditional Visa or Mastercard authorization and settlement processes. Consider cannabis payments to be like a road under construction, where delays, closed lanes and detours may occur. But with a comprehensive consumer engagement strategy, dispensaries can improve sales and delight customers in their stores.

The cannabis industry has struggled with digital transaction limitations from the outset of legalization a decade ago. True stories of cash piling up, being used for utility payments, payroll and rent still exist but have abated as banks and credit unions installed compliance programs to monitor risk. Cash still prevails as the predominant retail payment solution but digital transactions are becoming more prevalent, resulting in increased sales per transaction and efficient, digital settlements. The road is still under construction but dispensaries can adopt solutions to drive revenue and make cash flow improvements.

A consumer engagement strategy can include cash/ATM, bank transfer ACH, PIN debit solutions, and potentially loyalty, gift card, and other non-cash payments.

Types of cannabis payment methods

These three types of payment methods are among the most common in use by dispensaries. Each has its own pros and cons.

  • Pay-by-bank (ACH): ACH transactions take place between banks, which directly transfer funds from one account to another without using a card network. In most cases, ACH is the most reliable payment solution available to dispensaries and other types of plant-touching businesses. It requires customers to enroll (particularly first-time customers), providing their routing and bank account number, usually with a mobile app. After first enrollment, payment is stored and easily accessible with the app.

Pro: ACH is the most reliable solution available to cannabis operators today. Low rates of NSF combined with swift settlement serve dispensaries well. The enrolled app engenders repeat business loyalty, too.
Con: Customers typically need to download an app and enter their bank account information the first time they use it. Adoption rates have traditionally been fairly low but are increasing as more brands pair loyalty with payments, like the Jane Gold consumer rebate program for brands.
Gut Check Question: Is the most important factor for your business to have a reliable, compliant digital payment solution? ACH meets the need.

  • Cashless ATM/Point of Banking: These payments support the use of debit cards (with PIN) through the ATM networks. In most cases, the transaction is rounded up to the nearest dollar or $5 increment, sometimes as a tip for budtenders. Some ATM networks might not process cannabis-related transactions.

It’s worth noting that ATM networks could decide to stop supporting these transactions at any time. Credit Card associations have expressed concern about the use of the Cashless ATM method too.

Pro: Customers are accustomed to using PIN debit cards to pay at retail.
Con: Cashless ATM PIN Debit solutions are a repurpose of a different process and could be subject to disruptions. Dispensaries could lose the capability without advance notice.
Gut Check Question: Is only one solution enough if the lane gets closed?

In need of reliable cannabis banking services? Check out Green Check Direct and Green Check Connect for cannabis-friendly, tailored solutions that suit your business needs.

  • Credit cards: Credit card transactions are prohibited in U.S. dispensaries because card networks don’t provide a way to process cannabis transactions. However, some processors have sought to work around this roadblock using a loophole involving a “digital asset” purchase and transfer. This is a process in which customers use their credit cards to purchase a digital asset in the amount of their cannabis products. The asset is then transferred to the retailer and converted back to the equivalent dollar value, then deposited in the dispensaries bank account. Fees are generally deducted prior to bank deposit.

This digital asset conversion payment method may offer more problems than solutions. Customers generally aren’t familiar with the digital asset conversion process nor may they understand that they are actually buying something other than dispensary products. On their card statements, the merchant of record is usually an unfamiliar company, adding more confusion. While most digital assets theoretically hold a 1:1 value to the US dollar, there may be instances where there is an actual currency conversion which could subject the dispensary to unknown currency value risk. It is critical for dispensary owners to know EXACTLY what is happening at every step in the process, from the consumer all the way to settlement in your bank account. This potential for unpredictability in sales margins is financially risky. Credit card payments via digital asset or currency conversions are likely an unreliable payment solution for both customers and dispensary operators.
Pro: Customers are accustomed to credit card use.
Con: Until US federal legalization or another acceptance program is designed by the credit card networks, the wide variety of cannabis market solutions will continue to be disrupted as the networks protect their issuers, brands, and regulations. There’s a high degree of volatility and variability in how much this payment processing method can truly cost your business.
Gut Check Question: Are you comfortable working with a loophole solution?

What to look for in a cannabis payments partner

With an understanding of the available cannabis payment options, you can start looking for the right partners to complete your digital retail payment strategy. Here’s what you should look for as you find solutions for accepting cannabis payments, in whichever form you’d like to take them.

ACH

When working with a company that provides ACH services, it’s important to consider the following:

  • Customer experience: If there are too many steps to purchase, customers may abandon their cart and never return.
  • Funds availability: Take into account how long it takes for these transactions to be deposited into your bank account. Delays could impact your cash flow and financial planning.
  • Contactless capability: When choosing an ACH provider, look for one that offers contactless options that support pickup orders and delivery services.

Some companies, like Aeropay, have developed comprehensive bank-to-bank ACH solutions that allow customers to pay in-store, on-line, and via delivery, too. Once established, the consumer payment method is secure and always available to use. ACH services are preferable for dispensary operators because they enable seamless transactions in addition to a great customer experience.

Aeropay is part of the Green Check Connect marketplace, which brings together verified cannabis businesses and cannabis-friendly financial institutions.

Cashless ATMs and PIN Debit

When assessing cashless ATMs and PIN Debit providers, consider the following factors:

  • Nuance: Payment processors code various transactions differently in their reporting. Understanding the nuances between different cashless ATM and PIN Debit providers, and how they operate, is paramount in minimizing your compliance risk.
  • Network: Not all ATM networks support cannabis transactions, so determine which network the processor is using and research their stance on cannabis transactions.
  • Uncertainty: Remember, these private networks could change their stance at any time, so try to figure out if they’ve expressed support for the industry in the past. Reliability and longevity should be top of mind.
  • Consider multiple solutions: Due to variability in network rules, it may be prudent to equip your dispensary with more than one option.

Credit cards

When considering a provider for “accepting” credit card payments in your dispensary, investigate the following aspects of the service provider:

  • Compliance: How individual credit card processors categorize transactions for cannabis products can be risky for dispensaries. Deeply understanding the mechanics of these payment processing services is paramount to staying in good standing with your local and state laws. Credit card use in dispensaries may even yield a higher risk for fraud charges if not done correctly.
  • Variable Cost of credit card transactions: Aside from understanding the mechanics of the many niche payment processing services, it’s critical to understand what underpins the service’s designated transaction cost. Untimely settlements of more than 3 days, excess/unexposed fees, and multiple participants in the transaction all add variability and risk.
  • Transaction compliance: Cryptocurrency is generally seen as risky by traditional banks and financial institutions. So is cannabis, as you know. If credit card transactions via cryptocurrency for cannabis products are not recorded properly, it could raise flags to your bank, and even halt or prohibit your banking services. That would be detrimental to any cannabis business.

Choose Green Check partners for verified financial services

The world of cannabis payments is still a road under construction and there are a lot of risks to recognize and know how to circumnavigate. When you work with Green Check and our network of payment service partners, you know you’re getting reliable and effective solutions that you can trust to help grow your business into the future. The cannabis industry needs trusted financial partners to continue growing, and at Green Check, we’re bringing the two together.